Hi, I am hoping to retire in 3 years. What to do these next 3 years?

[MossHawk6]

I never give specific financial advice, here. I was nervous nellie the 2 years before I pulled the plug, wanting to be certain my nest egg didn't take a major hit before my retirement date. So my only suggestion is if you think a significant market correction would affect your retirement plan, than consider a more conservative allocation. For my conservative mindset, I also loaded up my taxable savings in my last 2 years, to provide an income cushion in event of a market downturn.

I am comfortable with 70/30 now, but do plant to transition to 60/40 befire retiremnt. I am seeing lot of suggestions to build up taxable/cash in place of the extra in 401K. I was thinking that as well and feel good about other confirming those thoughts.

Thx

 

[MossHawk6]

Be triple sure you can use the rule of 55 with your company 401k - I could not have, but it was irrelevant as we were retiring before that anyway.

To avoid/reduce this dependency, or either way, I'd recommend you focus on a bit more after-tax savings, especially anything that's above your company match/tax-caps, etc.

Having cash on hand (CD's, etc.) so that you don't always have to withdraw from investments gives you flexibility. I can think of plenty of times in recent history where I would not have wanted to be taking a loss to cover my normal expenses.

I have checked with the 401K and the rule of 55 is allowed. By brother just actually did the same thing, so should be good there.

Sounds like I need to start building up taxable/cash, seems to be the consensus.

Thx

 

[MossHawk6]

OP is looking good,as others said.
Definitely keep that pension, just over 10% annual payout at age 55 compared to the cash out option. See if you can buy a few years more of that pension at the same payout rate.

$9000 per month expenses seems a bit high unless you're including a lot of money for new vehicle replacements and discretionary retirement activities (travel).
Perhaps shapen that number to separate Basic Expenses from Discretionary ones especially after the last kid is fully launched from college.

And I would NOT make extra payments on that 2.5% mortgage!

My $9000 number is just trying to keep current living levels. We do plan on doing lots of travel as well.

I am currently trying to get a more detail budget in retirement, such as discretionary, travel, etc.... Its been thought provoking for us to try and think thru what we want to be doing.

 

[MossHawk6]

I think you’re looking good. I suggest you start building up a taxable brokerage account including a stash of “safe” money in high yield savings or money market. The after tax funds can be handy in allowing you to do Roth conversions or large expenses that might push you into a higher tax bracket if taken from pretax accounts.

This is the consensus! We will see how much we can accrue in these next several years.

Thx

 

[MossHawk6]

OP doesn’t say if he has any after tax accounts. I assume he does and I echo the recommendation to take the next three years to bolster the after tax account and do so with very liquid investments. Basically build a significant cash reserve. I would even go so far as to recommend scaling back the 401K contributions to only max out the company match. He doesn’t really need anymore money in tax deferred accounts.

I do not have any taxable accounts, so looks like I will be going that route with all of the suggestions in this thread. Appreciate the advice!

 

[MossHawk6]

I think you are looking good.
Is your pension payout for life and does it have survivor benefits?
Definitely run Firecalc and review the questions in MarieG post.
Maybe contribute to an after tax account for the next 3-5 years.
Perhaps a year or two before retirement, live on that $9000 (pre tax per your post) monthly amount, make sure it works.

Welcome to the forum!

The pension will be for life and it would have 50% survivor benefits.

Firecalc looks good, still makes me nervous thou. I think no matter how much I have, I will feel uncomfortable. Just want to make sure I am not missing anything.

Most advice in this thread is the same, build up taxable.

I like the prove to myself that we can live on $9000 a month as well. My work is fairly flexible, so I can try out a lot of what we want to do while working those last couple years and see how it goes.

Thx

 

[Target2026]

Unfortunately I have $120,000 in 401K Roth. I WISH I have $1,200,000. I will feel alot better.

oops! Sorry about the oversight. 1.6M is still commendable!

 

[marinauser]

I would spend the next three years tracking every dollar that goes out using your choice of options like Quicken, spreadsheets or whatever works for you. We started really tracking our expenses two years or so before we quit working and have continued for the past more than 10 years. We don't live to an inflexible budget but I like to have an idea so that we can anticipate cash needs. For us, dividends, interest and capital gains tends to fund everything but I try to have on January 1 enough cash or equivalents on hand for two years in case I need money and don't want to sell in a bad down market - one year of cash in a taxable account and 1 in a tax deferred account to access if necessary.

I agree to spend the next 3 years or so building up the taxable account and transitioning to a asset allocation that will work for you. Also, you should probably expect your expenses to rise after retirement. Inflation as well as just time to do more things results in more expenses in my experience. Also, $9000 to me doesn't seem like a big monthly budget but to others here that is triple what they spend so impressions on your spending level will vary widely.

 

[Gallaher]

Lots of different opinions here and all are right! How can that be? You can adjust/flex anyway you choose.
The biggest question is how much do you want to be retired? Do you like your work? Status? Routine? Do you hate Monday mornings?
When I retired 7 years ago I had about a million less than you. Now I have about the same as you. I really wish I had retired five years sooner.
If you wait till all variables are perfect, you’ll never retire.
Now this is controversial: I’d pay off the house first.

 

[simple girl]

Does your monthly estimated expense include expected healthcare insurance costs after retiring?

 

[RetiredAndLovingIt]

Start working on replacing any big ticket items that will need replacement or upgrades at some point, for example a/c, heating, roof and cars.Mentally it's a lot easier to shell out the money for these items while a paycheck is still coming in than when it isn't. Definitely do a trial run for at least a year of living on the amount that you plan to live on and I also agree to build up your cash stash if you plan on using the ACA for health insurance. If you can live off mostly cash and do Roth Conversions to show low income you will qualify for larger subsidies and end up paying next to nothing for your health insurance. I'm no longer on the ACA but was only paying $168 a month last year and even less the year before.

 

[MossHawk6]

Does your monthly estimated expense include expected healthcare insurance costs after retiring?

It does. We are pretty fortunate to both have the ability to get health insurance thru our employer with retiree medical. That will help ALOT!

 

[MossHawk6]

Start working on replacing any big ticket items that will need replacement or upgrades at some point, for example a/c, heating, roof and cars.Mentally it's a lot easier to shell out the money for these items while a paycheck is still coming in than when it isn't. Definitely do a trial run for at least a year of living on the amount that you plan to live on and I also agree to build up your cash stash if you plan on using the ACA for health insurance. If you can live off mostly cash and do Roth Conversions to show low income you will qualify for larger subsidies and end up paying next to nothing for your health insurance. I'm no longer on the ACA but was only paying $168 a month last year and even less the year before.

Good idea! Our furnace is fairly old, it's not if, it's when, it will need replaced. And maybe some new siding on the house....

We will have our health insurance thru our employer, so that makes that piece a little easier to manage.

Thanks everyone!

 

[MossHawk6]

Lots of different opinions here and all are right! How can that be? You can adjust/flex anyway you choose.
The biggest question is how much do you want to be retired? Do you like your work? Status? Routine? Do you hate Monday mornings?
When I retired 7 years ago I had about a million less than you. Now I have about the same as you. I really wish I had retired five years sooner.
If you wait till all variables are perfect, you’ll never retire.
Now this is controversial: I’d pay off the house first.

This is my biggest "mental" hurdle. I don't want to go "early" and run out, but I also don't want to work if I don't have to. I want to enjoy things while I can. My family history is not the best, so also worried about that. I like my job, it's very flexible, which will allow me to travel and such while still working if needed. My wife drives 1 hr each way to work, so she wants to be done at 55 (I agree). So, plan on having her retire at 55, then I work a year or so and see how the first years' work.

My wife wants to pay off the house as well. Shes more emotional, I am for data driven, so my mind says to keep mortage at 2.5%, and hope that the market does better.